For Moody’s, the Central Bank’s strategy of guaranteeing the payment of bonds is good but has an inflationary cost

After passing the first market test for Silvina Batakis, the local affiliate of the risk rating agency Moody’s warned that the Central Bank’s offer to buy bonds from banks and thus guarantee the participation of entities in the auctions , “would imply a change in risk exposure of activities by financial entities “.

The move, which a priori may seem successful, involves risks for the entities. “Banks could partially reduce credit risk until December 2023 at the cost of a increased risk of inflationary exposure, in the event that the fiscal deterioration continues and the government bond option is executed in an environment of low demand for local currency, “said Carlos de Nevares, vice president and senior analyst at Moody’s Argentina.

De Nevares spoke with Clarione and warned him the banks are blocked within a “corralón de pesos” and that inflation is eating up their margins.

– How do you assess the Central Bank’s strategy of offering special securities to banks?

– As a strategy, it looks good because the credit risk is assumed by the Central. If the Treasury does not pay or the bonds fall, the one that comes out to answer is the Central and since it is the issuer of the pesos, it seems logical that the banks trust more in entering public bonds.

Chatting with the banks we see it they were already satisfied with the exposure in public securities they had up to now. The problem is that deposits continue to grow and there are not many options for banks: the Leliqs are full, no credit requests for the rates that the market has.

-What are the risks for financial institutions in continuing to finance the Treasury in this way?

In part, the credit is better, because the BCRA, at least historically, has a better credit profile than the Treasury, because there has never been a default. From the end of convertibility to here, the Central has always responded for all its debt. The only thing we see is that the independence of the Central Bank falls, is limited with this put.

There are not many options for the financial system today, given the level of interest rates that exist. There aren’t many other options besides Leliq, Treasury, or corporate bonds. Indeed, many banks were entering corporate securities, although these do not have the secondary market for Treasury securities.

Banks bet on Treasuries very short term, the strategy is to minimize exposure to national government.

– Will financial institutions be able to get out of this dichotomy in the short or medium term to place their surpluses?

-There are a pen of pesos, there is a circle: either you put them in Treasury bills, or you put them in corporate or in Leliq. There are no other options, why there are no real estate investments, there are no long-term investments. The deposits arrive, those pesos are trapped in the financial system and I put them in Leliq, at the top of Leliq and at the Treasury.

Banks will continue to renew, the question is at what pace they renew. At the beginning of the year we saw that there would be lower returns for banks due to the inflationary environment, due to the issuance of lack of positive real rates. We also saw that credit demand would remain very depressed, which could have increased in the first quarter, but then decreased. All this happened.

– How does this affect the soundness of banks’ balance sheets?

-The margins are very tight due to inflation. By having minimum and maximum limits on interest rates and costs that are nearly efficient, not much margin is left. What hits hard are the numbers below the line. I think the banks will end up slightly green this year, but It will be a difficult year.

What what saved them in the first quarter were government bond yields. The data for the second half of the year are not yet available, where we note the acceleration of inflation and the decline in CER securities.

– Will Batakis be able to deliver on its promise of positive real rates?

February was already a complicated year: we were witnessing an acceleration of inflation and that the recovery shown in 2021 was difficult to sustain with such high inflation levels and negative real rates: Nobody would have wanted to place another fixed term if the rate did not cover it against inflation.

Although there are institutional investors willing to renew and there are remunerated accounts that pay a certain positive rate, In general, the private sector renews itself at negative real rates. It will be difficult, in our opinion, to offer positive real rates, because the renewal would involve a big ball of pesos for the rest of the year.

Financial institutions should be able to start charging positive financial margins. The ceiling on the interest rate is hurting entities. If they could charge positive financial margins, they could start lending more.

NEITHER